Federal Reserve Meeting Minutes Show Broad Support for Taper… The minutes of the September meeting suggests the central bank reduce bond purchases starting in mid-November.
What it means— The details of the meeting surprised no one, but they did give us a bit more information on when the tapering might start. It sounds like the members of the FOMC plan to cut their bond purchases in mid-November instead of waiting for December. Those two weeks won’t change anything. The bigger question is, will the bankers stick to the plan if the wheels come off economic growth? We’re about to find out.
Atlanta Fed’s GDPNow Model Shows Third-Quarter Growth at 1.3%…The quantitative model was updated last on October 8 after the non-farm payroll numbers.
What it means— The model, which has been very accurate over the better part of the last decade, updates with every major economic release. It started the third quarter estimating GDP growth at 6% and then dropped steadily during August and September to about 3% before cratering in early October. We’ll get the first advance estimate of third-quarter GDP growth
on October 28, followed the next week by the Fed’s November monetary policy meeting. If third-quarter GDP growth is near 1% and the Fed tapers bond purchases as expected, it could give investors the jitters, because the Fed will be removing monetary stimulus in the face of weak growth.
Inflation pressures continued last month though expensive items are expected to have slowed with the next retail sales report. With slowing discretionary spending, Goldman Sachs cut its growth forecast for next year posing downside risks for markets.
Inflation Climbs Back to 5.4%… The consumer price index (CPI) increased 5.4% in September over the same time last year. Core inflation, excluding food and energy, increased 4%.
What it means— Atlanta Federal Reserve Bank President Raphael Bostic called on central bank officials to stop referring to inflation as transitory, as if their terminology had any effect on prices. Last month, it was all about gasoline and food prices, which were up 1.2% and 1%, respectively. Those are the two things excluded from core inflation, which is why that measure
remained unchanged. But a little digging shows that rent, which makes up one-quarter of inflation, jumped 0.5% last month, the biggest increase in two decades. When house prices are included, the impact is one-third of CPI. We can expect that trend to continue as eviction moratoriums expire and home prices march higher. Rising prices put pressure on the Fed to tighten monetary policy, but falling economic growth calls for the opposite. If things remain the same, we’re looking at stagflation.
Pandemic related inflation is driven by the supply chain issues which will eventually be resolved. Policy decisions are separate and contribute to both inflation and the labor problems. Everything from cotton to cars is impacted by delayed shipments due to factory closures, port logjams and a lack of drivers. Bad weather in Asia is hampering shipments. Holiday demands could collapse the system. After the reports on iPhone production cuts, the impact on earnings may not be very much. AMZN is shopping for long-range aircraft to ship its products from Asia bypassing FedEx and UPS. Costs related to system delays are being passed on to consumers. Higher consumer prices add to the stickiness of inflation. The Fed’s position is holding to “transitory” putting the start of taper in this quarter.
Port of Los Angeles Agrees to Operate 24/7… Matching a move by nearby Long Beach, the port of L.A. agreed to increase its operating hours attempting to reduce the backlog of ships waiting to unload.
What it means— Many, if not most, other busy ports around the world operate 24/7, so this brings the port of L.A. in line. The dockworkers opposed the move. We’ll see if the rest of the infrastructure required to move goods, such as trucks and trains, can increase operations enough to match the port’s activities and ease the supply chain bottleneck. Do whatever they want, weather is beyond the control of the Administration, the Fed and the longshoremen. Typhoons are disrupting shipping from Asia.
The U.S. Economy has 7.67 Million Unemployed Workers and 10.4 Million Job Openings… A record 4.27 million people quit their jobs in August.
What it means— We have more than enough jobs for every unemployed worker, but structural issues such as mismatched skills and locations remain. Companies claim they can’t get enough help, which is driving them to increase pay. The record-high quit rate points to a tight labor market for workers because, for the most part, they leave their employment for a better job.
Retail Sales Up 0.7% in September…Retail sales far exceeded the consensus estimate for a 0.2% drop.
What it means— The number is less interesting when we consider that overall prices were 0.4% higher last month, so inflation caused a good chunk of the increase. Also, during September, with the coronavirus delta variant spreading, consumers shied away from travel and dining out and turned their attention back to consumer goods, boosting retail sales at the expense of services. The report likely will give GDP a slight boost, but not enough to lift it near 2%. We’re still moving toward stagflation.
Man Gives Truthful Answer When Asked About Plans for Powerball Winnings… When the Powerball jackpot recently soared above $500 million, television stations sent reporters to local stores to ask ticket buyers what they would do with the cash. KSLA reporter Kori Johnson in Shreveport, Louisiana, asked a young man about his plans and got a surprising answer. The unidentified man said he would buy “a super-charged Mustang with dual exhaust and about five kilograms of cocaine, and I’ll be good to go!” Not missing a beat, Johnson replied, ”Okay, so you like cars.” No wonder she has the job of on-air reporting, she’s quick on her feet.
Data supplied by HS Dent Research
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